In cable world, market forces continue to shape an a la carte menu

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WASHINGTON (CNS) — The typical U.S. household spends the bulk of their TV viewing time watching 17 channels on average.

So why do cable companies foist dozens upon dozens — not to mention the hundreds upon hundreds offered by the satellite TV industry?

This gulf between demand and supply — and the cost of the supply — is what has been driving the desire for a la carte cable for the past several years.

And despite the cable industry’s refusal to tinker with its business model to satisfy its customer base, a la carte is gaining a toehold in Americans’ TV menu.

Some “basic” cable channels have shed more than 10 percent of their viewers from year-ago levels. That’s a bad sign if your company owns that cable channel. Among the loss leaders are MSNBC, History, Bravo, BET, USA and Comedy Central. If you own a channel and sell it as part of an all-or-nothing package with your other cable entertainment holdings, your bargaining position has suddenly grown weaker.

It’s all relative, of course. Cable viewing is down 10 percent across the board. But there’s little incentive for the cable system to pay the fees demanded by the owners for their channels if their ratings are dipping. This means the economic foundation that sets the price of cable is tottering and quite possibly crumbling.

In March, TV industry analyst Michael Nathanson, perhaps in an effort to scare people away from the a la carte option, worked up a series of price projections for what some of the most popular cable channels would charge.

The big kahuna was ESPN, which Nathanson said would charge $36.30 a month. The other top a la carte fees, according to Nathanson, would be charged by Disney Channel, $8.25; TNT, $8.05, USA, $5.45; Nickelodeon, $4.99; TBS, $4.58; FX, $3.72; Spike, $3.66; Discovery, $3.40, and Lifetime, $3.17.

Of course, not even ESPN could get away with charging $36.30 a month for its services, even if it bundled all of its ESPN-related channels for that price. And very few people would pay $82 a month just for those 10 channels. The prices are predicated on the assumption that, without cable bundling, the channels would lose viewers and thus ad revenue, so channel owners would have to charge those sums to maintain their current revenues and profit margins.

It’s a two-way street, though. Some cable channels put such a high price tag on their offerings that cable operators balk at paying it.

Such is the case in Los Angeles, where Time Warner Cable is taking a bath on its SportsNet LA channel, which it created to sate the appetite of Los Angeles Dodgers baseball fans. Other cable systems in California’s Southland region aren’t buying what SportsNet LA is selling.

Time Warner said it expected to have to take a writedown of $1 billion — that’s billion with a “b” — based on its flawed pricing strategy, which is a seemingly modest rate of roughly $5 per subscriber per month.

Cable subscribers don’t pay that fee, but it’s instead built in to the overall cost for “basic cable.” And it’s the zooming cost of basic cable that has consumers rebelling.

Time Warner has been in the news more of late because Comcast, the nation’s top provider of cable service, had sought to acquire Time Warner, which ranked second. But after a year pushback from federal regulators and activists, Comcast withdrew its bid of $45 billion for Time Warner in mid-April.

One final note: When I was a teenager, the public TV station in Detroit used to conduct a weeklong on-air auction of goods and services donated by area businesses. One auction item was TV ad time by the CBS affiliate. To everyone’s surprise, an independent UHF station won the prize and aired promos for its shows on the much-more-watched VHF channel. This led to a “non-compete” clause when the CBS affiliate offered the auction item in future years.

Times haven’t changed much. Verizon prepared commercials plugging its FIOS Custom TV service for the New York market, the United States’ biggest by far. The package gives customers 35 channels and lets them to choose two additional category-specific tiers, like sports and children’s programming, for $55 a month.

But Disney, which owns ABC, and Fox have nixed the Verizon FIOS ads for both TV and radio and even their own cable holdings like YES, which shows New York Yankees games, fearing the ad will be too effective and more customers will cut the cable cord.